The Legend of King Midas according to Paul Krugman

Ed: A wonderful piece regarding a Marxist view of gold as currency in relation to a parable by Paul Krugman. This is part of a larger post that must be read. I highly recommend subscribing to this blogCritique of Crisis Theory.

Paul Krugman writes: “The legend of King Midas has been generally misunderstood…. What the gods were really telling him is that gold is just a metal.” In the very first chapter of “Capital,” Marx explained how gold, though it is as a physical use value a metal, becomes the universal equivalent and thus the independent existence of exchange value. Value always takes the form of exchange value where the use value of one commodity becomes the measure of the value of another. Gold becomes the “thing”—which as a material use value is “just a metal,” in Krugman’s words—that mediates the money relationship of production among people.

“If it sometimes seems to be more [than a metal],” Krugman explains, “that is only because society has found it convenient to use gold as a medium of exchange—a bridge between other, truly desirable, objects. There are other possible mediums of exchange, and it is silly to imagine that this pretty, but only moderately useful, substance has some irreplaceable significance.”

Krugman here only sees gold as a means of exchange C—M—C. Its role as a measure of value and the independent form of exchange value completely escapes him. The essence of capital M—C—M’ is therefore completely beyond him.

Krugman quotes the Reagan-era ultra-right journalist and amateur economist Jude Wanniski(1936-2005) as writing: “We must convert all wealth into the measure employed by mankind for 6,000 years, i.e., ounces of gold.” Though Wanniski cannot explain why the use value of gold has been used to measure wealth for 6,000 years, he at least recognizes that money functions not only as a means of circulation but is also a measure of social wealth under capitalist relations of production, which for Wanniski are eternal. What was true today was true 6,000 years ago and will remain true 6,000 years from now.

Since Wanniski was born into a family of coal miners and his grandfather was a communist, it is possible that he did read Marx, though if he did, it did not prevent him from embracing reactionary ideas. In any case, Wanniski does show a greater understanding of the measure of social wealth under capitalism than the professional Nobel Prize-winning economist Paul Krugman does.

Krugman thinks it is ridiculous to measure wealth in terms of the use value of gold—or some similar commodity. Doesn’t wealth consist of the use values of all commodities?

“What is fascinating about this passage,” Krugman observes, “is that Wanniski regards gold as the appropriate measure of wealth [my emphasis—SW], regardless of the quantity of other goods and services that it can buy.” Krugman is making the commonsense observation that wealth consists of material use values that satisfy our everyday wants, a fact that is obvious to every child.

Therefore, Krugman can’t figure out why we have to use the use value of a particular commodity that has rather limited uses outside its role as a measure of value as the universal measure of wealth. Why must capitalist wealth be expressed in terms of gold, the product of one particular type of concrete labor? Marx, beginning in the very first chapter of “Capital,” explains why this indeed must be so under all forms of commodity production including the capitalist mode of production.

Now let’s see what another economist—Brad DeLong, who like Krugman is actually one of the most progressive economists, by the standards of bourgeois economists—has to say about this subject. In an article entitled “Why not the gold standard,” DeLong writes: “Countries seeing downward market pressure on the values of their currencies are forced to contract their economies and raise unemployment. The gold standard imposes no equivalent adjustment burden on countries seeing upward market pressure on currency values. Hence a deflationary bias which makes it likely that a gold standard regime will see a higher average unemployment rate than an alternative managed regime.”